Encouraging corporate results by Reliance Industries and some others, caused the market to rally 644 points over the week, and the sensex to cross the 17k mark to close at 17,125. The major contributors to this rally were ICICI Bank with 131 points, Bharti Airtel with 98 points, following good results and L&T with 74. It is likely that there may be a spurt in the coming week, inveigling investors into believing that the worst is over. It may be prudent to beware of this and to treat a further rally as a chance to get lighter.

Barring Maruti Udyog, whose Q4 net profit dipped a third, results of Reliance Industries (PAT up 21%), Hero Honda (up 53%), Idea Cellular (up 45%) and Bharti Airtel (up 37%) were encouraging. The Indian corporate sector is delivering performance, and, with it, taxes, as well as the feel good factor. The Government is busy squandering the tax revenue.

There are two humungous subsidy bills that are uncontrollably bloating and which, thanks to accounting deceit, do not get reflected in the Budget.

The subsidies get paid for (partially) by issuing bonds, so that they are not refelected in the Budget, thus allowing the Finance Minister to (falsely) claim that targets of reduction of fiscal deficit are being met. They aren't.

The bonds are also ruining the balance sheets and cash flows of fertiliser as well as oil marketing companies, thus affecting their minority shareholders. The bonds are not given SLR status, which would allow banks to invest in them; hence the number of potential buyers are very limited.

The fertiliser subsidy, e.g., is some $ 20 b. or Rs 80000 crores, or 2% of GDP. The petro product shortfall, due to under recoveries thanks to prices of petrol, diesel, kerosene and LPG being kept lower, is estimated to be Rs 1.6 lac crores. Of this, the Government bears 42%, or Rs 67,200 crores, which is another $ 16b, or 0.8% of GDP. One third of the subsidy is borne by upstream companies ONGC, OIL and GAIL and a quarter by oil marketing companies such as IOC, HPCL and BPCL which are haemorrhaging to death. If these subsidies were to be accounted for in the Union Budget, the fiscal picture would not be rosy. It would be red.

Chickens always come home to roost and so will these.

Luckily for India, whose citizens worship a plethora of Gods, one of them always saves the day and makes up for follies of our leaders. In the case extant it is gas supply, which hopefully will start flowing from June, that can save the day. There is, however, a huge scramble for this resource, with claims made by fertiliser manufacturers and power utilities, on it, at discounted prices, to allow for the production of cheaper products/service. In settling these rival claimants, there is a huge scope for blunders.

The fiscal profligacy not only crowds out the private sector, which is more productive, but also leads to innovative and unfair revenue raising demands. Investors in stockmarkets have witnessed the utter injustice of an arbitrary and artificial dichotomy between an investor (who pays no tax on long term gains and 10% on short term gains) and a trader (who pays tax at higher, marginal rates). The distinction is completely arbitrary, giving huge scope for corruption with no attendant benefit.

Now the Finance Ministry cohorts have proposed subjecting SEZs, who were promised tax free profits on exports for 10 years, to a 12% MAT (minimum alternative tax). This is unethical, unfair and unnecessary, if we wish to sell India as an attractive investment destination.

In the coming week, the market is likely to continue its upward trend, perhaps reaching 17,500 to 18,000 on the sensex. Thereafter it is likely to correct. The fiscal health of the Government is poor. Economic reforms have taken a back seat, rather, they have been dropped off at the last busstop! Political inconsistencies of strange bedfellows will also start to be felt, with more 'not now, honey, I have a headache' sentiments expressed.

Globally, although Bank of England has also given a large financial package, swapping acceptable Government bonds for unacceptable, tainted mortgage securities, thus providing a temporary breather to global financial markets, it would be a matter of time before this trance wears out.

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.